Fallout for states rejecting Medicaid expansion

Rejecting the Medicaid expansion in the federal health care law could have unexpected consequences for states where Republican lawmakers remain steadfastly opposed to what they scorn as “Obamacare.”

It could mean exposing businesses to Internal Revenue Service penalties and leaving low-income citizens unable to afford coverage even as legal immigrants get financial aid for their premiums. For the poorest people, it could virtually guarantee that they will remain uninsured and dependent on the emergency room at local hospitals that already face federal cutbacks.

Concern about such consequences helped forge a deal in Arkansas last week. The Republican-controlled Legislature endorsed a plan by Democratic Gov. Mike Beebe to accept additional Medicaid money under the federal law, but to use the new dollars to buy private insurance for eligible residents.

One of the main arguments for the private option was that it would help businesses avoid tax penalties.

The Obama administration hasn’t signed off on the Arkansas deal, and it’s unclear how many other states will use it as a model. But it reflects a pragmatic streak in American politics that’s still the exception in the polarized health care debate.

“The biggest lesson out of Arkansas is not so much the exact structure of what they are doing,” said Alan Weil, executive director of the nonpartisan National Academy for State Health Policy. “Part of it is just a message of creativity, that they can look at it and say, ‘How can we do this in a way that works for us?'”

About half the nearly 30 million uninsured people expected to gain coverage under President Barack Obama’s health care overhaul would do so through Medicaid. Its expansion would cover low-income people making up to 138 percent of the federal poverty level, about $15,860 for an individual.

Middle-class people who don’t have coverage at their jobs will be able to purchase private insurance in new state markets, helped by new federal tax credits. The big push to sign up the uninsured starts this fall, and coverage takes effect Jan. 1.

As originally written, the Affordable Care Act required states to accept the Medicaid expansion as a condition of staying in the program. Last summer’s Supreme Court decision gave each state the right to decide. While that pleased many governors, it also created complications by opening the door to unintended consequences.

So far, 20 mostly blue states, plus the District of Columbia, have accepted the expansion.

Thirteen GOP-led states have declined. They say Medicaid already is too costly, and they don’t trust Washington to keep its promise of generous funding for the expansion, which mainly helps low-income adults with no children at home.

The remaining states are still weighing options. Concerns about the unintended consequences could make the most difference in those states.

A look at some potential side effects:

The Employer Glitch

States that don’t expand Medicaid leave more businesses exposed to tax penalties, according to a recent study by Brian Haile, Jackson Hewitt’s senior vice president for tax policy. He estimates the fines could top $1 billion a year in states refusing.

Under the law, employers with 50 or more workers that don’t offer coverage face penalties if just one of their workers gets subsidized private insurance through the new state markets. But employers generally do not face fines under the law for workers who enroll in Medicaid.

In states that don’t expand Medicaid, some low-income workers who would otherwise have been eligible have a fallback option. They can instead get subsidized private insurance in the law’s new markets. But that would trigger a penalty for their employer.

“It highlights how complicated the Affordable Care Act is,” said Haile. “We wanted to make sure the business community understood.”

The Immigrant Quirk

Arizona Gov. Jan Brewer, a Republican, called attention this year to this politically awkward problem when she proposed that her state accept the Medicaid expansion.

Under the health law, U.S. citizens below the poverty line — $11,490 for an individual, $23,550 for a family of four — can only get coverage through the Medicaid expansion. But lawfully present immigrants who are also below the poverty level are eligible for subsidized private insurance.

Congress wrote the legislation that way to avoid the controversy associated with trying to change previous laws that require legal immigrants to wait five years before they can qualify for Medicaid. Instead of dragging immigration politics into the health care debate, lawmakers devised a detour.